413-03: NRAs Scholarships and Fellowships
Fiscal Operations Manual
Section 400: Expenditures
Scholarship and fellowship payments are made to assist a person in pursuing a course of study or research.
Taxable income is any money paid to a foreign visitor on which taxes are required to be paid to the US government. The agency that pays the scholarship (OSU) is required to deduct a certain amount from each student’s scholarship or student account to cover the student's estimated tax liability.
Withholding means that the taxes a foreign visitor is obligated to pay to the US government will be taken out of the scholarship check or charged to the student, if the full scholarship payment is made to the student. OSU collects the withholding taxes by placing a charge ‘NRA Withholding’ on the student’s account and sends the taxes to the IRS as required by law. The University reports the amount of any scholarship or fellowship monies received by non-resident alien students, as well as, any Federal taxes withheld on IRS Form 1042S “Foreign Person’s US Source Income Subject to Withholding” by the annual March 15th deadline.
The IRS allows a portion of scholarships and fellowships to be excluded from taxable income. Scholarship and fellowship payments made to foreign visitors may include a combination of the following:
- Tuition, fees, books, and course-related materials (non-taxable)
- Room and board for scholar athletes (taxable)
- Stipends for living expenses including meals, lodging, and other personal items (taxable)
- Medical insurance premiums paid to insurance companies (taxable)
Portions of scholarship and fellowship payments that are used for meals, lodging, non-mandatory medical insurance, travel, personal living expenses, or stipends are taxable income unless a specific tax treaty exclusion applies.
Non-taxable Payments - A qualified tuition reduction (such as GRA/GTA) will not be taxable for those graduate students at an educational institution who perform teaching or research activities for that institution. In order for the teaching or research activities to lead to a non-taxable tuition reduction, the activities performed must be incidental to the student’s educational endeavors. For undergraduates, a qualified tuition reduction is not taxable, if the reduction is not representative of a payment for services.
- A student loan is not considered to be a scholarship because the loan is expected to be repaid. It is generally not taxable.
- Cash and cash equivalent payments made by a student’s family member or a third party with the intent of settling the student’s debt to OSU are not scholarships and are not taxable.
- Students are responsible for completing the proper tax forms and providing them to the University, as well as, notifying the University of any change in their tax status. Changes in tax status include moving between states, changes in deductions, etc. Students should also be aware of the various forms they must file with the IRS and their State and local governments each year. Students should make every effort to keep detailed records of all IRS, INS, State, and local government forms and any other important documentation submitted to the University or to the various governmental authorities. Students should also keep photocopies of all their important forms/documents in a safe place to avoid future disputes over lost documents.
- If the total sum of your US source income was less than the personal exemption you are not required to file IRS Form 1040NR-EZ or Form 1040NR. However, if you had any taxes withheld, you should file IRS Form 1040NR-EZ or Form 1040NR to get a refund of these taxes and you must still file Form 8843. If you owe taxes and don't file, the IRS can assess penalty and interest plus seize US bank assets for repayment. Fines and penalties can often amount to more than the original tax debt.
- No one from the University can act as a representative for an individual when dealing with the IRS; however; in the event of a tax question or problem, the University can assist in supplying appropriate supporting documentation for payments made to individuals.
- The tax responsibilities of the University arise from its status as a state, non-profit educational institution, as an employer, and as a provider of student financial assistance. The University is responsible for withholding taxes from paychecks and other taxable payments made by the University to students and for the reporting of information to the IRS and to the various state and local tax authorities in accordance with statutes and regulations.